Branch Bank Buildings Are a Great Little Investment – Why You Should Buy Real Estate Leased to a Ban

Did you know there are now nearly 100,000 branch banks in the United States? They proliferated in the late ’90’s and earlier this decade like drug stores and fast food outlets. All the banks were scrambling for market share with convenience being the watchword. Are all the locations still going to be around after we get through this bank restructuring mess? The short answer is yes. However, many will see new occupants. Let’s look at some facts.

First the bad news. The credit crunch has triggered a series of forced mergers which have led to overlaps in many banking networks. We have witnessed JP Morgan acquire Washington Mutual and Wells Fargo purchasing Wachovia. In 2008, 40 banks failed according to the FDIC. In most cases these were small regional banks. Overall, about 170 banks are on the FDIC’s watch list and in a ‘typical’ year about 10 percent of the banks on this watch list fail.

Now the good news. So you ask yourself, why would I think that buying real estate with a bank as my tenant such a good investment? A number of reasons. First of all, the acquiring bank may just change the name on the door and continue to do business as usual and you, as the landlord, now have a new tenant and lease guarantor stronger than before. Secondly, if the new bank does not need the building you are still going to receive rent because most likely the new bank acquired all the assets and liabilities of the former bank, so you are OK there. Third, there are many, many community banks and credit unions that are doing great. They are always looking to upgrade their typically low-overhead locations and branch bank locations are ideal. Fourth, when a new credit tenant is found for a closed location the present tenant will be happy to speak with you about a buy-out of the remaining term and lease obligations. As is often the case, the tenant will offer around 50{899c36ff677aa4e6f803b4d39ab9718a0ef0e8c06d97a0e7fb74af059c0b0676} of the future rent obligations, if not more. That is money in your pocket, now! Apply that to your mortgage and see what your return on initial investment is. You would be astounded.

Most branch bank leases are triple net, that is, the tenant is paying all costs of their occupancy – real estate taxes, building insurance, common area maintenance such as grass cutting, snow plowing, painting and the rest. Therefore, there is little if any management responsibility for the owner in terms of knowledge or time. For the professional business person, this is the hurdle they always need to overcome when purchasing real estate in a fee simple form. So look into branch banks – you too can own a bank.